Free Trial

MNI: EU Loses Patience As Italy Blocks Bank Backstop-Officials

(MNI) Brussels

European Union pressure on Italy to finally ratify a treaty to reform the European Stability Mechanism is set to intensify in coming months amid revived concerns about ensuring the stability and resolution mechanisms of the eurozone banking sector, EU officials told MNI.

More than two years after the approval of the treaty reform, which would authorise funding for a backstop of up to EUR68 billion for the EU’s Single Resolution Fund, Italy is now the only country not to ratify, despite promises from Prime Minister Giorgia Meloni that she would ensure parliament does so.

While the eurozone has weathered the shockwaves from the crisis among U.S. regional banks, officials are concerned that the ESM treaty is necessary to underpin the region’s financial architecture.

“If Italy doesn’t ratify then there is no backstop and should there be a large enough [bank] resolution there will not be enough money in the pot,” one EU national official said.


The right-wing Meloni campaigned against ESM reform during last year’s general elections, but has since sought good relations with Brussels and is now overseeing a renegotiation of Italy’s EUR200 billion European-funded National Recovery Plan. Italian officials told MNI the prime minister and her Economy Minister Giancarlo Giorgetti would like to ratify the treaty change, but have yet to find the right political narrative to sell it to the governing coalition in parliament. (See MNI: Italy Tells Brussels Will Miss June NGEU Deadlines-Source)

“In the Italian debates Meloni and her party argued that the ESM change only benefited Germany, and that is rubbish, [and now] they don’t find a way to make a U-Turn,” another EU source said. “Probably the most vulnerable banks are in Italy and so they would be the ones most benefiting from the backstop not Germany.”

Rome still hopes it can strike a deal to modify the ESM treaty, which it regards as too punitive to debtor countries, or at least a promise to modify it in future, an Italian source close to the matter told MNI.

Without some concession from Brussels, Italian sources think that while Meloni could force the ratification through, a noisy minority from her Brothers of Italy party and League coalition partners would cause significant trouble, potentially ending what has been an unusually long period of parliamentary discipline by the standards of Italian government. (See MNI: Italy Prepared To End ESM Treaty Stalemate-Officials)

Brussels officials have dismissed any changes to the ESM reform as impossible, but ESM Managing Director Pierre Gramegna is in contact with the Italian government and has publicly emphasised his readiness to do what he can to help get ratification over the line. The national official noted that Gramegna, who is soon expected in Rome again, had suggested creating a new instrument to address calls from Italy to make ESM programmes more focused on growth rather than austerity, which could help fund countries’ green transitions.

“There is a paragraph in the Treaty that allows the ESM to create new instruments - if the board of governors says so. In some cases that involves the national parliaments,” the official said. “But the creation of new instrument will raise questions in many countries and will very much depend on their design and conditionality.”


The topic is expected to arise at next week’s Eurogroup meeting when reports from the EU’s Single Resolution Board and Single Supervisory Mechanism will be discussed. Germany’s likely reaction to ideas like this is as yet unclear, but is unlikely to be positive.

Progress on ratification is seen as most likely to come from putting pressure on Italy.

“If Italy says no, other countries will not be happy, and at some point Italy will need their support,” said another EU official. “People will also say there’s not going to be any progress on [banking system] crisis management if we don’t have the backstop.”

Meanwhile, Rome is also using ESM ratification as a bargaining chip in negotiations on topics including the ongoing revision of the EU’s fiscal rules, the Italian source said, noting Italy’s disappointment at how the fiscal talks have proceeded.

“It was quite frustrating for us to see how the new proposal suppress the idea of leaving green and digital investments out of debt calculations,” said the official. (See MNI:EU In Fiscal Reform Race Before Old Rules Return-Officials)

MNI Brussels Bureau |
MNI Brussels Bureau |

To read the full story

Why Subscribe to


MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.